The SEC issued an investor alert cautioning investors about dangers of investing in initial exchange offerings (IEOs) of digital assets through online trading platforms.
On January 14, 2020, the SEC provided an investor alert, which cautioned investors about the dangers of investing in initial exchange offerings (IEOs) of digital assets through online trading platforms. IEOs are similar to initial coin offerings (ICOs) as they both represent an initial offering of digital assets to raise capital. However, IEOs are offered directly by online trading platforms on behalf of companies, usually for a fee, to provide immediate trading opportunities for the digital assets.
Although online trading platforms offering IEOs sometimes refer to themselves as exchanges, they are often not registered with the SEC and typically lack the investor protections of registered or exempt securities offerings.
The alert provides advice to help market participants:
Understand the risk involved with investing in IEOs conducted on an offshore trading platform.
Recognize whether an IEO is a securities offering.
Recognize whether the trading platform on which the IEO is being offered needs to:
either register with the SEC as a national securities exchange or operate under an exemption; or